Exploration of Price Game Mechanisms in Blockchain Development

In the development of blockchain technology, the decentralized price game mechanism has always been an important issue that has been overlooked. With the vigorous development of decentralized finance ( DeFi ) in recent years, both industry insiders and outsiders have begun to have a preliminary understanding and exploration of on-chain price mechanisms. How to generate prices, this key variable, on the blockchain in a way that is more in line with its essence is a direction worth深入研究.

Bitcoin, as the world's first Blockchain project, can be said to be the origin of the "Blockchain" concept. The first well-known over-the-counter transaction of Bitcoin took place in Florida, USA, where a programmer exchanged 10,000 BTC for two pizza vouchers, thus giving Bitcoin its initial price: 0.003 cents.

The price reflects the value of a unit of goods or services, and its level is determined by the market supply and demand relationship. At that time, the price of Bitcoin was reached through the equilibrium of buyers and sellers; although it was just a small market of two people, it marked the budding of Bitcoin's monetary trading attributes.

With the emergence of cryptocurrency exchanges, "price demand" has also arisen. Miners, believers, capitalists, ordinary investors, futures traders, and other participants all require price as a variable. The game among the parties gradually improved the general equilibrium properties of Bitcoin. However, as the popularity of Bitcoin rises and traditional finance leans towards crypto assets, the issues of centralization and lack of transparency are becoming increasingly severe.

Centralized exchanges and pure on-chain interactions have a huge difference in processing speed. Exchanges are measured in milliseconds, while blockchain operates on a block basis, with Bitcoin generating a block every 10 minutes and Ethereum every 13 seconds. This difference results in transfers being completed on-chain, but the trading prices are provided by centralized exchanges, creating a disconnection between the two. In the unregulated cryptocurrency space, data falsification is difficult to avoid.

After the global financial crisis in 2008, "trust" and "security" became important topics. The same year, the Bitcoin white paper was released, proposing a protocol concept that is not based on "trust". The most important characteristic of Bitcoin is decentralization, with its issuance and transfers not controlled by any entity. To deconstruct the "trust entity", Bitcoin transfers require confirmation from all nodes in the network. This may seem inefficient, but it achieves highly secure asset transfers without the need to trust third parties.

For crypto assets, the pricing mechanism, or pricing process, is determined collectively by the parties involved in the game. Can this market-based gaming process be generated on-chain in a decentralized manner like transfers? As the degree of decentralization increases and more participants engage in the game, will its security also improve, thus being able to support larger transaction volumes?

Currently, most DeFi protocols require on-chain price data, mainly through oracle nodes providing prices or the project party outputting prices themselves. This method usually connects to the APIs of centralized exchanges, uploading price data or taking the median value through multiple nodes before being put on-chain. Clearly, the main process of price gaming remains opaque, with significant influence from centralized factors, making it difficult for users to effectively verify, which contradicts the decentralized and trustworthy nature of Blockchain.

The NEST protocol has chosen to continue the decentralized path of Bitcoin, synchronously generating price information on-chain through non-cooperative game theory. Anyone can quote and verify prices for ERC20 tokens/ETH pairs supported by NEST, without the need for permission or third-party guarantees. The identity of the quoting party is not important; the key is that anyone can verify the authenticity of the price through arbitrage. This is similar to the mechanism in the Bitcoin network where all nodes must confirm a transaction before it can be recorded.

The more players participate in the NEST protocol game, the more secure the system becomes, and the larger the amount of funds it can accommodate. This is similar to Bitcoin, as both enhance the credibility of the system by increasing participation. NEST brings the price game of the crypto world from centralized exchanges into decentralized protocols, which will be a long battle for consensus.

Decentralization is a progress of civilization, reflecting the unique wisdom of humanity. Blockchain technology is essentially a science that requires continuous hypothesis, induction, proof, and falsification. The price game mechanism continues the attempt of the decentralized spirit of blockchain, and although its future is uncertain, the direction is undoubtedly correct. After all, in the field of blockchain, successful cases are still rare, and more exploration and practice are needed.